TMI Blog2017 (3) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09, 2009-10, being on identical facts, directed the Assessing Officer to restrict the disallowance as contained in the order of the Tribunal dated 27/03/2015 (for Assessment Year 2009-10), for the present Assessment Year also, the disallowance is directed to be restricted to ₹ 10 lakh under section 14A of the Act r.w.r. 8D(2)(iii), against the claim of the assessee at ₹ 1 lakh, consequently, the Ld. Assessing Officer is directed to follow the ratio laid down in order dated 27/03/2015 (Assessment Year 2009-10). Disallowance of interest on the alleged basis that borrowed funds were utilized for non-business purposes - Held that:- As mentioned earlier, the Department in earlier and subsequent Assessment Year, accepted the stand of the assessee, therefore, no U-turn is permissible at this stage, when the facts are identical. Even otherwise, the issue of consistency has already been discussed by us in preceding paras of this order. Thus, the Ld. Assessing Officer is directed to follow the ratio laid down in theorder of the Tribunal in assessee's own case and hold that the funds were utilized for business purposes as the same were advanced by the assessee for the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus, rule of consistency requires that similar view should be taken in the present year also. It was also explained that the assessee has already made suo-moto disallowance of ₹ 1.10 crores and ₹ 1 lakh. 3.1. On the other hand, the ld. CIT-DR defended the disallowance made by the Assessing Officer and further enhanced by the Ld. Commissioner of Income Tax (Appeal). It was also contended that each year is independent, therefore, addition/disallowance was rightly made by the Assessing Officer. It was also contended that rule of consistency is not applicable in the present case. 3.2. We have considered the rival submissions and perused the material available on record. We find that the Tribunal vide order dated 09/12/2015 ITA No. 4418 /Mum/ 2012, for Assessment Year 2008-09 on identical issue, considered the factual matrix and dismissed the appeal of the Revenue, considering the decision of Hon'ble Calcutta High Court in the case of Dhanuka Sons (339 ITR 319), relied upon by the Revenue. The decision from Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (2009) 313 ITR 340 was also considered and then reached to a conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of disallowance of interest. Considering the totality of facts, we find that so far as the disallowance out of indirect expenses is concerned, as claimed by the assessee, the issue is covered by the decision of earlier years. 3.3. So far as, the issue of disallowance of other amount out of interest by applying rule-8D(ii) is concerned, we find that the amounts are identified and quantified and specific amount of interest expenses were incurred towards investment. The assessee duly maintained the books and followed the appropriate method. The method adopted by the assessee can only be rejected with objective reasons based upon books of accounts of the assessee. Except for saying that the investment are more than own funds, the Ld. CIT (Appeal) has not pointed any error in the working of the assessee. Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del.) clearly held that Rule-8D can only be applied if the objective reasons are given for rejection of method, adopted by the assessee. From pages 103 to 129 (copy of balance sheet and investment) it is evidently clear that the investment are very old and no much time an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on interest funds were advanced to a sister concern, no disallowance was justified. Further, the Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.) had similarly held that when sufficient non interest funds were available for investment then no disallowance of interest should be made. The Bombay High Court had placed reliance on the decision of East India Pharmaceutical Works Ltd. vs. CIT [1997] 224 ITR 624 (SC) to the effect that if the assessee had sufficient non interest funds, then investment made in shares and securities resulting in exempt income should not lead to disallowance of interest expenditure, as there was no question of attributing any interest to such investments. Lastly, reference was made to the decision of the Gujarat High Court in CIT vs. Suzlon Energy Ltd. [2013] 354 ITR 630, to the same effect. 10. Having heard the Counsel for the parties, we feel that the respondent assessee is entitled to succeed on somewhat different grounds and reasons, than those elucidated by the Tribunal. Xxxxxxxxxxxxxxxxxxxxxxxxxx 18. It is in this context we feel that the findings recorded by the CIT(A) and the Tribunal are appropriate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 0.5% of the average amount of value of investment, appearing in the balance sheet on the first day and the last day of the assessee has to be disallowed. 20. However, in the present case we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) to Section 14A of the Act read with sub Rule (1) to Rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub Rule (2), without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re-computation. Therefore, the respondent assessee would succeed and the appeal should be dismissed. 3.4. In the aforesaid decision, Hon'ble High Court duly analyzed section 14A of the Act r.w.r 8D of the Rules. Reference was also made to the decision from Hon'ble Delhi High Court in CIT vs Tin Box Company (2003) 260 ITR 637 (Del.) by holding that when the assessee had sufficient funds and non-interest funds were advanced to sister concern, no disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, he can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or nil disallowance made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub Rule (1) categorically and significantly states that the Assessing Officer having regard to the account of the assessee and on not being satisfied with the correctness of the claim of expenditure made by the assessee or claim that no expenditure was incurred in relation to income which does not form part of the total income under the Act, can go on to determine the disallowance under sub Rule (2) to Rule 8D of the Rules. Sub Rule (2) will not come into operation until and unless the specific pre-condition in sub Rule (1) is satisfied. Thus, Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under sub Rule (2) to Rule 8D of the Rules is to be made. 3.7. Now, we shall analyze scope of sub-section (2) and (3) of Section 14A of the Act. Sub-section (2) of Section 14 A of the Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 3.8. Rule 8D, as we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - such method as may be prescribed . We have already mentioned above that by virtue of Notification No.45 of 2008, dated March 24, 2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the asses see; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year. The Assessing Officer shall determine the amount of the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects (a) The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. and (b) The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. 3.10. Even earlier the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. versus Deputy Commissioner of Income Tax (2010) 328 ITR 81 (Bom.) had referred to Section 14(2) of the Act and observed:- Under sub-section (2), the Assessing Officer is required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. The method, having regard to the meaning of the expression pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154. 3.11. Equally illuminating are the following observations in Godrej and Boyce Mfg. Co. Ltd. (supra) However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to deter-mine the proportion of expenditure incurred in relation to the dividend business (i.e., earning exempt income). It is for exactly such situations that a machinery/method for computing the proportion of expenditure incurred in relation to the dividend business has been provided by way of section 14A(2)/(3) and rule 8D. 3.12. More important and relevant for us are the observations in Godrej and Boyce Mfg. Co. Ltd. (supra) on requirement and stipulation of satisfaction being recorded by the Assessing Officer with reference to the accounts under Section 14(2) of the Act and Rule 8D(1) of the Rules. It was observed:- Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y then he is entitled to adopt the method as prescribed under Rule-8D of the Rules, thus, Rule-8D is not attracted and applicable in a situation, where, the assessee has voluntarily computed the disallowance as per Rule-8D of the Rules. 3.14. So far as the argument of the assessee with respect to rule of consistency is concerned, we note that in the previous and subsequent assessment years, the Assessing Officer treated the assessee as an investor, therefore, we are of the view that unless and until contrary facts are brought on record by the Revenue, no U-turn is permissible. The learned Assessing Officer is bound by rule of consistency. The ratio laid down in following cases supports the case of the assessee:- i. Parshuram Pottery Works Ltd. vs ITO 106 ITR 1 (SC) ii. CIT vs A.R.J. Security Printers 264 ITR 276(Del.) iii. CIT vs Neo Polypack Pvt. Ltd. 245 ITR 492 (Del.) iv. CWT vs Allied Finance Pvt. Ltd. 289 ITR 318 (Del.) v. Berger Paints India Ltd. vs CIT 266 ITR 99 (SC) vi. DCIT vs United Vanaspati (275 ITR 124) (AT)(Chandigarh ITAT) vii. Union of India vs Kumudini N. Dalal 249 ITR 219 (SC) viii. Union of India vs Satish Pannalal Shah 249 ITR 221 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, relief under s. 80-I can be denied to it in respect of some of the assessment years when similar relief is granted for previous and subsequent years. Having accepted at least in three assessment years that the assessee s business activity fell within the ambit of s. 80-I, the Revenue cannot be allowed to now turn around and contend that deduction under the said section is not available to it in respect of the present assessment years. For the foregoing reasons, without going into the merits of the issue raised, the appeals are not entertained. (Paras 7, 8 10) Conclusion : Having accepted in three assessment years that the assessee s business activity of printing lottery tickets fall within the ambit of s. 80-I, the Revenue cannot be allowed to turn around and contend that deduction under the said section is not allowable in respect of assessment years in question; appeal not entertained. 3.16. In the case of CIT vs Neo Polypack Pvt. Ltd. 245 ITR 492 (Del.), the Hon'ble Delhi High Court held as under:- No fault can be found with the order of the Tribunal declining to make a reference on the proposed question. It is true that each assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide assessment order dated 17/02/2014, as book profit u/s 115JB of the Act after making certain disallowances and adjustment. Thus, the assessee suffered the disallowance of ₹ 4,62,71,213/- u/s 14A of the Act. The Assessing Officer noted that the assessee earned exempt income as per the following details:- Sr. No. Particulars Amount (Rs.) 1 Dividend 14,76,49,893 2 Income from Partnership Firm 63,05,233 3 Long Term Capital Gain 128,78,88,114 It is noted that the assessee has already made suo-moto disallowance of ₹ 1,09,16,417/- relating to interest expenditure and ₹ 1 lakh for dividend collection charges, thus attributable expenses worked out to ₹ 1,10,16,417/- for exempt income. It is also found that the Assessing Officer accepted the interest disallowance made by the assessee and observed that ₹ 1 lakh, incurred as dividend collection charges were disproportionate to the dividend income of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. We find that the Tribunal vide order dated 27/03/2015 (ITA No. 202/Mum/2013 and 207/Mum /2013) for Assessment Year 2009-10, followed the decision of the Tribunal in the case of assessee itself for Assessment Year 2008-09 with respect to disallowance made by the Assessing Officer under rule-8D(2)(ii) and 8D(2)(iii) of the Rules along with the disallowance of the administrative expenses. In that case, the Ld. Commissioner of Income Tax (Appeal) restricted the disallowance to ₹ 10 lakh against the suomoto disallowance made to the tune of ₹ 1 lakh. The disallowance to the tune of ₹ 10 lakh was upheld by the Tribunal against the claim of ₹ 1 lakh by the assessee. So far as, the contention of the ld. counsel for the assessee that the disallowance may be restricted to ₹ 1 lakh only, is concerned, we are not satisfied with such reasoning because the rule of consistency applies to both sides and since, the Tribunal for Assessment Year 2008-09, 2009-10, being on identical facts, directed the Assessing Officer to restrict the disallowance as contained in the order of the Tribunal dated 27/03/2015 (for Assessment Year 2009-10), for the present Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... juxtaposition and analyzed, we find that the facts, in brief, are that the assessee declared income of ₹ 188,50,28,066/- in its return filed on 29/09/2008 which was processed on 27/07/2009, u/s 143(1) of the Act. Since the case was selected for scrutiny notice u/s 143(2) of the Act was issued to the assessee on 04/08/2009. The Assessing Officer vide order dated 27/12/2010, framed u/s 143(3) of the Act, determining the total income at ₹ 191,99,06,040/-(Assessment Year 2008- 09). The Assessing Officer received information from ITO- 25(1)(4), Mumbai, vide letter dated 25/04/2012 (received by the Assessing Officer on 01/05/2012) that certain payments amounting to ₹ 43,50,00,000/- were made by the assessee company by way of advances to M/s PRS Developers (proprietor Shri Nilesh J. Thakur) on various dates in Financial year 2007-08 and the said parties accounted such receipts towards expenses related to development works at Kandivali Project for which no documentary evidences were maintained by the said concern. The Assessing Officer made enquiries with the assessee company and found that the assessee company made substantial payments to M/s PRS Developers. There was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Nilesh Thakur, factual finding recorded in the impugned order and also considered the arguments advanced from respective side. We find that the primary facts relating to all the transactions entered by the assessee during financial year 2007-08 were very much available before the Assessing Officer when he framed the original assessment u/s 143(3) of the Act, therefore, no new material was made available at the later stage. Broadly, the reason for reopening is based upon the finding arrived at by the ITO of Shri Nilesh Thakur and it can be said it was a merely borrowed satisfaction. In a landmark decision the Hon'ble Apex Court in Kelvinator of India Ltd (2010) 320 ITR 561 has evolved a broad principle as under what circumstances reassessment can be framed. Likewise in Green World Corporation vs ITO (2009) 314 ITR 81 (SC), the Hon'ble Apex Court held that the order passed by the Assessing Officer at the dictate of the CIT is 'nullity'. Likewise the Hon'ble High Court of Rajashthan in Syntex Ltd. (2009) 313 ITR 221 held that 'initiation based on the opinion of the Assessing Officer of other party, is 'borrowed satisfaction', consequently, not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly indicates that the notice u/s 148 was solely issued on the basis of information received from ITO 25(1)(4), having jurisdiction upon Shri Nilesh Thakur. The basic requirement section 148 is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, thus, the law does not permit such a action. The following decisions supports our view:- 1) CIT vs Kelvinator of India Ltd. (2002) 256 ITR 1 (Del.) 2) Sheth Brother vs JCIT (2001) 251 ITR 270 (Guj.) 3) CIT vs Corporation Bank Ltd. (2002) 254 ITR 791 (SC) 4) Garden Silk Mills P. Ltd. Vs DCIT (1999) 237 ITR 668 (Guj.) 5) CIT vs Hickson Dadajee Ltd. (1980) 121 ITR 368 (Born.) 6) Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.) 7) Garden Silk Mills vs DCIT (1996) 222 ITR 68 (Guj.) 8) Mercury Travels DCIT (2002) 258 ITR 533 (Cal.) 9)JCIT vs George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati) 10) CIT vs Sambhar Salt ltd. (2003) 262 ITR 675 (Raj.) We find that there was no new tangible material with the Assessing Officer to form a belief that income chargeable to tax had escaped assessment, thus, in view of the decision from Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanically issued notice u/s 148. The only basis of issuing the notice u/s 148 was merely the later information received from ITO 25(1)(iv). The totality of facts clearly indicates that no new material came to the possession of the Assessing Officer leading to conclude that the income has escaped assessment, thus, issuance of notice for reopening and reassessment order passed u/s 143(3) r.w.s.147 of the Act was rightly held to be unsustainable in law. The existence of tangible material is necessary to ensure against an arbitrary exercise of power, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). This ground of the Revenue is, therefore, dismissed. 3. So far as, deleting the disallowance of ₹ 34,01,095/-, u/s 36(1)(iii) of the Act is concerned, we are reproducing hereunder the relevant finding of the ld. First Appellate Authority for ready reference:- 13.3. I have considered the A.O.'s order as well as the appellant's AIR submission. Further 1 have perused the matter in its entirety and the aforesaid findings of the A.0, I have also perused the copy of the plaint along with the records and documents fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court, the amounts advanced by the appellant are only for acquisition of lands in the Project areas of Panvel, Alibaugh, Pen and Raigad district. The appellant has produced records and documents in support of the transactions entered into with Shri Nilesh Janardhan Thakur and his group entities. All facts obtained from the records and documents reveal that the appellant had provided funds to Shri Nilesh Thakur for land acquisition in the project areas. In view of the same, any contrary submissions/explanations given by Shri Nilesh Thakur during the course of his assessment and appellate proceedings cannot be considered as a foundation for arriving at any negative inference in the case of the appellant. 13.4. The fact that Shri Nilesh Thakur, during the course of his assessment proceedings for A.Y.2008-09 and 2009- 10 had explained that he had received amounts towards the development of project at Samata Nogar, Kandivali (E) Mumbai and (or development of World Trade City at Garodia Nagar, Goregaon. Mumbai is clearly borne from the findings recorded in his assessment order for A. Y 2008-09 and 2009-10. But it is equally relevant note that Shri Nilesh Thakur could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds i.e. own funds and borrowed funds and that the appellant had sufficient own funds as on the date of advancing funds to Shri Nilesh Janardhan Thakur. It was submitted that the funds in the bank account were fungible and merely because there was negative balance in the current account on a particular date, it cannot be inferred that the payments made was out of borrowed fund It was also submitted that the factum that the funds were fungible has been accepted by the AD himself in so far as the AD has restricted the disallowance of interest only till the date when there was positive balance in the current account maintained with the bank. The appellant's A.R s in support, relied on the decisions in cases of Hon'ble Supreme Court in the case of Munjal Sales Corporation v CIT (supra) and Hon'ble Bombay High Court in CIT v Reliance Utilities and Power Ltd. (supra) wherein it was held that where the capital and profits are more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available. 13.6 I find that the appellants own funds as on 31.3.2007 and 31.3.2008 were as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t free loans given to its subsidiaries should be considered as having been given out of its own funds. It was contended that assessee had' not taken any specific interest bearing loans for advancing interest free loans to its subsidiaries. It was submitted that in view of the fungibility of the funds available, it can be legitimately presumed that the interest free loans given to the subsidiaries had been given out of own funds of the assessee company deployed in the business. It was also contended that the net profit after tax and before depreciation during the year stood at ₹ 7054.84 crores. Thus, the net profit for the year under consideration exceeded not only the incremental loans given to the subsidiaries during the year but even exceeded the total interest free loans of ₹ 2988.98 crores given to the subsidiaries as on 31/3/2002. It was also contended that in the absence of any nexus between the interest bearing borrowed funds and the interest free loans given to subsidiaries and considering the fungibility of funds and the fact that own funds far' exceeded such loans, it has to be presumed that such interest free loans had been given out of own funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon 'ble Calcutta High Court in Wool Combers of India Ltd., J 34 ITR 219 (Cal) s wherein it was held that if there were sufficient profits available to meet the advance fax liability and the profits were deposited in the overdraft account of the assessee,' in such a case it should be presumed that the taxes were paid out of profits of the year and not out of the overdraft account for the running of the business. Considering subsequent decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities Power Ltd. (supra), wherein it was specifically held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee. Therefore, considering the fact that the assessee had its own funds more than the loans given to its subsidiaries and also in the absence of any nexus establishing that the interest bearing 'borrowed funds were g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thakur for aggregating land in terms of appointment letter dated 16/07/2007, thus, we find no infirmity in the conclusion drawn in the impugned order as the ld. CIT (A) has already placed reliance upon the decision from Hon'ble Apex Court in Munjal Sales Corporation, from Hon'ble jurisdictional High Court in Reliance Utilities Powers Ltd. (supra) and the decision of the Tribunal in Reliance Industries ltd. (ITA No.3082/Mum/2006) order dated 28/05/2012. His stand is affirmed. This ground of the Revenue is also dismissed. 4. So far as, the merits of the case is concerned the factual finding recorded by the ld. Commissioner of Income Tax (Appeals) is reproduced hereunder for ready reference and analysis:- 13.1. As held by me hereinabove, the order passed by the AO is not sustainable since the notice issued for reopening of assessment was invalid. However, the issue raised in ground of appeal no.3 is also adjudicated hereunder since the A.R. s have made detailed submissions on merits of the case also. On merits of the case also, I find that the AO has computed disallowance of interest for the reasons discussed at para 5 of the assessment order. According to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of these transactions is thrown by the findings of the ITO-25(1)(4), Mumbai and C!T(A)-35, Mumbai in the individual assessments of Shri N.J Thakur for the A.Y.2008-09. This is discussed hereunder: f. Para 5.4.7 From the above it is clear that Shri NJ Thakur claimed to be a partner with my assessee and claims to have received money as advance for various projects in Bombay. However, neither Shri NJ Thakur nor my assessee have submitted a single documentary evidence regarding their association with each other through partnership or through appointment as consultant / agent / any other relationship. My assessee has not recognized Shri N. J. Thakur as a partner and no partnership agreement was made. Shri N. J. Thakur could not produce any evidence whatsoever regarding the alleged projects he has undertaken on behalf of my assessee. Based on the above findings, the AO of Shri N. J. Thakur proceeded to assess the amounts received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been utilized by my assessee for the purpose of its business. I therefore hold that no deduction out of the same can be allowed either as expenditure or allowed to be capitalized under the head 'work-inprogress'. This being the case, the only other issue to be seen is the source in the hands of the assessee for having advanced this Doney and the tax implication thereon. Accordingly, in the course of assessment proceedings, the AR of the assessee has been asked to explain as to why proportionate disallowance for the interest bearing funds utilized for non business purposes should not be disallowed for which the assessee simply stated that the payments are wholly and exclusively for the purpose of business. The submission of the assessee has been considered, however the same is not acceptable in absence of any evidences. Accordingly, the interest disallowance on such payments is discussed hereunder; 13.2 Amid appellate proceedings, the appellant's AIR has strongly pleaded against the A.O's action and filed a detailed written submission in. support of his contention, the relevant portion of the same is extracted as under.: l. On the merits of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our business. The entire amount of advance was reflected in the Balance sheet under the head Current Assets-Advance for land. 1.The appellant has a common pool of funds i.e. own funds and borrowed funds and the own funds, as on the date of advancing funds to Shri Nilesh Janardhan Thakur, were in excess of the amounts lent. We rely on the decisions in cases of Hon ble Supreme Court in the case of Munjal Sales Corporation vs CIT and Hon ble Bombay High Court in CIT vs Reliance Utilities and Power Ltd. wherein it was held that where the capital and profits are more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available. The appellants own funds as on 31.3.2007 and 31.3.2008 were as under:- As on 31.3.2007 As on 31.3.2008 Share Capital 82,00,000 203,02,00,000 Reserves Surplus 171,45,01,507 297,79,91,248 Total 172,27,01,507 500,81,91,248 2. Even for the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant as 'Advances/or land'. Shri Nilesh Janardhan Thakur by his letter dated 22ndMarch 2010, informed the appellant that the payment received was used for acquiring properties and that the surplus funds had been kept in fixed deposit and that the properties would be transferred in favour of the appellant as soon as possible. However thereafter, Shri Nilesh Janardhan Thakur, neither refunded the monies nor transferred the properties to the appellant. In these circumstances, the appellant filed Suit No. 2576 of 2011 against Shri Nilesh Janardhan Thakur, PRS Enterprises others in. September 2011. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by trans/erring all the moveable and immoveable assets in favour of the appellant. The Hon'ble Bombay High Court passed an order dated 19thOctober 2011 in the aforesaid Suit and decreed the monies, assets and properties, illegally misappropriated by Shri Janardhan Thakur and his entities in favour of the appellant . 13.3 Having regard to the above admitted facts recorded in the suit filed by the appellant before the Hon'ble Bombay High Court which are duly supported by records and document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered, there is no contradiction in between the explanation given as regards the nature and purpose of advances given by the appellant to Shri Nilesh Thakur. The admitted stand of Shri Nilesh Thakur in the appellate proceedings for A. Y 2009-10 is duly supported by the records. Hence, the only inevitable conclusion that can be inferred is that the appellant had advanced monies for acquisition of lands at Alibaug, Pen, Panvel and other areas in and around Raigad district, which is explicitly evident from the 'letter of appointment issued by the appellant company dated 16/07/2007 in favour of Shri Nilesh J Thakur and subsequent acceptance fetter dated 19/07/2007given by Shri Nilesh J Thakur to the appellant. The land acquisition in project areas is during the course of the regular business activity of the appellant. The funds advanced by the appellant to Shri Nilesh Janardhan Thakur are thus held to be for appellant's business purposes. Accordingly, it is held that the disallowance computed out of claim of deduction of interest u/s. 36(J)(iil) was not called for In the aforesaid facts. 13.5. Even further to the afore-stated facts, the appellant's A.R's have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) it was held as under: 5.1. The A 0 has slated that assessee has advanced interest free loans to its subsidiary companies. The AD has stated that assessee was asked to prove the nexus between source of funds out of which advances were given to its subsidiary companies and interest free or' own funds available with the assessee. The assessee filed details and stated that the assessee had given loans and advances of ₹ 2988.98 crores to its subsidiaries as on 31/03/2002, out its own funds and internal accruals except to the extent of relying 'upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby : Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of ₹ 11,19,382/-. Being aggrieved the assessee filed appeal before the first appellate authority. 5.2 It was contended on behalf of the assessee that assessee's own funds were far in excess of the interest free loans given to its subsidiaries: It was contended that as per audited accounts.. assessee's own funds as on 31/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of S.A. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the orders of the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities Power Ltd. (supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient 10 meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider it proper and appropriate to hold that the disallowance made by the A.O. u/s 36(1)(iii) of the Act of ₹ 34,01,095/- in the given facts of the case is completely unjustified and incorrect. In view of the same, the addition so made by the A. 0. is deleted. Thus, this ground of appeal is allowed. 3.4 In view of my decision in appeal for A.Y.-08-09, wherein the facts are identical to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of ₹ 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A.Y.2008-09. Thus, taking note of all the factual position of the case, I consider in proper and appropriate to hold that the A.O. was not justified in his action. Accordingly the appellant's these grounds of appeal are allowed. 4.1. If the factual finding recorded by the ld. Commissioner of Income Tax (Appeals), we note that (as contained in para-13.4) Shri Nilesh Thakur, during the course of assessment proceedings for AY 2008-09 and 2009-10 duly explained that he received the amounts and during the course of enquiries before various authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation and Mr. Thakur admitted of having received the funds from the assessee company. It is also noted that the assessee filed recovery proceedings before the Hon'ble High Court, wherein, the money was ordered to be refunded to the assessee. In the aforesaid order, the Ld. Commissioner of Income Tax (Appeal) as well as the Tribunal held that the amounts were given by the assessee are business advances. Shri Nilesh Thakur admitted before the Hon'ble High Court as the true nature of transaction which was duly supported by record and a letter of the assessee company dated 16/07/2007 and subsequent acceptance vide letter dated 19/07/2007, given by Mr. Thakur to the assessee company. While coming to a particular conclusion, the decision from Hon'ble Apex Court in Munjal Sales Corporation, CIT vs Reliance Utilities and Power Ltd. from Hon'ble Bombay High Court and another decision of the Tribunal in the case of Reliance Industries vs DCIT (ITA No.3082/Mum/2006) order dated 28/05/2012 were considered. No contrary decision was produced before us from either side and more specifically the Revenue, contradicting the finding contained therein. As mentioned earlier, the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X
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